Corporate Finance and Governance Expert Joins Law Faculty

Robert Daines plans to build bridges between law and business schools.

Photo: Steve Gladfelter

Most people don't go into investment banking as a shortcut into academia, quips Robert M. Daines, the inaugural Pritzker Professor of Law and Business. But Daines had a professorship in mind when he took a job at Goldman, Sachs & Co., where he advised firms on bond and bank financings. "I wanted to learn about how business transactions were actually done. I felt it would give me a different perspective on teaching and research," explained Daines. "I had to hurry and leave before they made me rich," he added.

Daines joined the Stanford Law School faculty this summer from New York University School of Law, where he went after leaving Goldman Sachs. The Yale law graduate will teach corporate finance, corporations, deals, corporate governance, and one class a year at the Graduate School of Business, where he has a courtesy appointment.

Daines's plan to understand the business world before entering academia appears to have worked: Much of his research in the field has shattered assumptions long held by academics. One example was a study with Michael Klausner, Nancy and Charles Munger Professor of Business and Professor of Law, on protections afforded to managers during initial public offerings.

"Academics had said that when a firm goes public, it will do all the right stuff," including making managers vulnerable to a hostile takeover, Daines said. The idea was that managers who fear losing their jobs in a takeover will work harder. But about half the firms going public had takeover defenses protecting the managers' positions. The two standard assumptions—that firms will act in a way that provides the most value to investors and that takeover defenses are bad for business—can't both be right, Daines pointed out. "Either takeover defenses are good, or firms going public don't do the right thing," he said. "One assumption has to go, but we don't know which yet."

Daines, who just turned 40, decided to move his wife and five children to the Stanford campus, where they're renovating a house to fit them all, because, he said, "It was a chance to join a great school."

Daines is the son of a Brigham Young University business professor who graduated from Stanford with an MBA. A BYU graduate himself, Daines hails from Provo, Utah, which, he said, is "a bit like Palo Alto—probably more similar than either place would like to admit." He wanted a similar environment for his children: "I wanted to be able to bike to work and have my kids visit me in my office."

One of the topics Daines plans to pursue at Stanford is the compensation of chief executive officers. "Some CEOs get paid a lot, and some CEOs get paid only moderately obscene amounts," he said. With Lewis Kornhauser of New York University and Vinay Nair of the Wharton School of the University of Pennsylvania, Daines hopes to learn if there's a pattern to the paychecks. "We're trying to figure out if the CEOs who get paid a lot are the most skilled," Daines said. "It might be like sports—some CEOs are Michael Jordan, and some are not. But it might also be luck."

While he's developed a reputation for shattering academic assumptions, Daines said he doesn't pick research topics with the intent of disproving theories. "I'm more interested in finding out how things actually work," he said. "It's not about sticking a finger in someone's eye."

Besides his research, Daines said one of his goals is to build a better bridge between the schools of law and business. "I'd like to encourage more cooperation, with law and business students taking classes and doing research together," he said. "Increasingly, you need to know finance to understand law, and law to understand what's going on in the financial world."

—Mandy Erickson